Dubai property laws still in need of clarification
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Dubai property laws still in need of clarification

Dubai property laws still in need of clarification

Property laws in Dubai are still in need of clarification, and underlying implementation regulations, as the market struggles to find its feet, a panel of legal experts has said.

    Speaking to delegates at a meeting of the Dubai Property Society, legal experts from a number of locally-based firms analysed the impact of the latest legislation on the emirate's real estate sector.

    Responding to questions from delegates, the panel looked at topics including the implications of Law 9 of 2009, covering the repayments due to investors if contracts are terminated, the granting of six month residency visas for freehold property owners, and the limitations of the current escrow law.

    Law 9 states that developers are under obligation to repay monies put into a project by investors on a sliding scale according to how far construction has gone, with refunds ranging from 0% to 100%.

    What is uncertain is the precise terminology of the statute; what decides how far advanced the development is, and which milestone it has reached, and at which stage of a dispute will representatives from the Land Department be able to inspect the site.

    Lack of liquidity

    'In this sort of real estate market, once purchasers stop paying, that creates an almost impossible situation for the developer,' said Gary Budgen, Executive Chairman at PRDnationwide Middle East.

    'The reality is that there is a lack of money in the market,' agreed Jimmy Haoula, Partner at Bin Shabib and Associates. 'A lot of the developers promised to help buyers with getting finance, but since the credit crunch that is not possible.

    'So, although the lack of money is 90% of the reason for defaulting, no one will say so. They will say in court that the developer has not delivered what has been promised. The question that should be asked is how many of these disputes are opportunistic, brought on by negative equity due to market conditions.'

    'People don't want to be the one that continued to pay , when 99.9% didn't,' said Michael Lunjevich, Partner at Hadef and Partners.

    Despite this, a large majority of delegates present felt that Law 9 was weighed unfairly in favour of developers, with a lack of clarity in terms of timely resolution for investors. Of particular concern were questions on how to achieve a resolution if money in the escrow account had been legally spent on financing various aspects of a project prior to beginning construction, leaving nothing to give back to buyers.

    'The escrow law is inadequate in terms of offering no protection to purchasers,' said Lunjevich. 'In a couple of years time we will probably see the escrow law scrapped and replaced with a system where developers cannot touch any money until the property is handed over and the title for the unit is issued.'

    'Projects won't be cancelled until Rera comes up with a solution with the developer. The subdeveloper might be asked to pay 5% back to the developer,' said Haoula.

    Increase in disputes

    With the number of property-related cases increasing in the court system, the panel predicted that the current market conditions were likely to continue impacting on the sector into the foreseeable future.

    'It will take a couple of years, even after the market recovers, to get the disputes out of the system,' said Budgen. 'It will probably be up to three years before the disputes of the last few years get resolved.'

    In addition, laws such as the six month visa legislation, although a step in the right direction, still have some way to go before addressing investor worries. At present home owners cannot do such things as open a bank account, purchase a car or get access to Dubai Electricity and Water Authority (Dewa) services, due to the short term nature of the visa allowance.

    'There are issues with that particular law, what with having to leave the country and so on,' agreed Budgen. 'It is a starting point, but I think that it needs to be reviewed if it's to be a serious attraction. It is inadequate for attracting people who, for instance, want to come here to retire.'
    AMEinfo Staff

    AMEinfo staff members report business news and views from across the Middle East and North Africa region, and analyse global events impacting the region today.

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